Offsets and the Truthy Targets of Waxman-Markey

Steven Colbert
Steven Colbert
[Truthiness: The quality of seeming to be true, even if this contradicts evidence or rational thought -]

Explanations of the current version of the Waxman-Markey energy and climate bill (the American Clean Energy and Security Act or ACES) usually state that it will reduce greenhouse gas emissions from US polluters by 17% below 2005 levels by 2020 and by 83% by 2050. (At the time of writing, the "current" version is the version passed by the House Energy and Commerce Committee).

But this interpretation of the carbon trading provisions in the bill is, as arch global warming-denier Steven Colbert would say, truthiness. Because of the shockingly high levels of offsets allowed under ACES, the reality is that instead of mandating large polluters to cut emissions by 17% by 2020, the bill actually allows them to increase emissions by 16%. By 2050, industrial polluters would have to cut their emissions by 50%, rather than the apparent 83%. In other words, the bill limits emissions from capped sources to between 116-83% of 2005 levels by 2020 and to 50-17% by 2050.

The upper (weaker) limit of the ranges above would be reached if polluters use all two billion offsets they are allowed to count as “emission reductions” each year. The lower (stronger) limit supposes that none are used. Click here for a spreadsheet showing how we calculate the upper limits. The lower limits are set by the number of allowances issued to the “capped sources,” i.e. almost all non-land use sources of global warming pollution).

The percentage of emissions covered by the cap starts at 66% when the program comes into force in 2012, then levels out at 85% by 2016. The apparent (truthy) cap in 2016 implies capped sector emissions would have to be cut by 10% from 2005 levels. But International Rivers’ analysis shows that if all allowable offsets were used in 2016, capped emissions could actually increase by 23%. If all offsets were used every year, 2016 would be the year in which US non-land use emissions peak. (See here for a detailed International Rivers analysis of the offsets provisions in the draft version of the bill).

The IPCC has famously estimated that developed countries need to reduce emissions 25-40% by 2020 – from a 1990 baseline. Even if no offsets were used, ACES would reduce capped emissions by only 4% by 2020 compared to 1990. But using all allowable offsets would allow large polluters to increase their emissions by a whopping 34% from 1990 to 2020.

EPA Waves its Arms

The key wild card with any analysis of the Waxman-Markey targets is just how many offsets would be used. EPA has done the only quantitative projection I’ve seen of ACES offsets use, but this only goes into any detail for domestic offsets and just assumes without any analysis that all the international offsets allowed under the bill will be cheap and available.

EPA’s analysis of the first draft of ACES projected that only 110 million domestic offsets would be used in 2020, out of the one billion allowed (demand would rise to 460 million in 2050). Meanwhile, all one billion allowed international offsets would be used every year.

Perhaps because of EPA's conclusions on the low volume of cheap domestic offsets likely to be generated, the current version of ACES ups to 1.5 billion the number of international offsets allowed. EPA did a very brief update on the implications of the changes between the first and second versions of ACES. This update projects the use of 11% more domestic offsets, giving 122 million domestic offsets in 2020. It is not explicit on whether all 1.5 billion international offsets would be used. If they were to be all used, the EPA’s estimate of 122 domestic offsets would mean the total use of 1.622 billion offsets in 2020 and 1.96 billion in 2050.

Almost all fossil fuel and other industrial pollution is capped under ACES, so domestic offsets could only come from the agriculture and forestry sectors. EPA calculates that there are simply not enough emissions from farms, ranches and forests that can be mitigated at costs below those of reducing industrial pollution to make it attractive to polluters to use all allowable domestic offsets. EPA assumes that emissions from landfills and coal-mine methane would be reduced through regulations and therefore not available for offsetting – but if EPA is wrong and these sectors are allowed to generate offsets, it calculates that domestic credit supply could soar by 45%.

Climate-Wrecking Handouts for Pesticide Makers?

There is also a risk that domestic offset supply could soar (and quality plummet) if the Department of Agriculture is given jurisdiction over domestic offset regulation instead of the EPA, as currently being demanded by the chair of the House of Representatives Agriculture Committee Collin Peterson (D-Minn.). If this happens, the domestic offset program risks becoming nothing more than a huge hand-out to Big Ag. Most alarming is the possibility of large-scale offset generation from chemical no-till farming – this involves spraying pesticides rather than plowing as a way of controlling weeds before planting seeds. Not only is the practice noxious in terms of increased chemical use, it’s also unclear whether no-till has any carbon benefit (monitoring soil carbon fluxes is notoriously difficult).

Despite the impression of authority given by pages of charts, graphs and jargon, EPA’s offset supply and demand projections are really little better than hand-waving guesstimates. There are just too many variables involved (energy prices? allowance prices? offsetting rules? progress of international climate negotiations? clean tech developments?) to do much more than play pick-a-number-any-number.

The Good News?

One hopeful scenario is that a combination of good regulatory changes on energy efficiency and renewables (such as the provisions in the energy component of ACES mandating major improvements in building efficiency); green stimulus spending; technological improvements; and high energy prices may mean that US emissions decline regardless of the supposed constraint of the carbon trading cap. (And maybe the dialing back of the hyper-consumerist culture of the 1990s and early 2000s that many predict to outlast the current recession will also help bring emissions down.) If emissions fell steeply enough, carbon allowances would be cheap and demand for offsets negligible.

US energy-related carbon dioxide emissions have been falling since 2007. The Energy Information Administration has recently predicted a 4% drop in energy sector CO2 emissions by 2010 due to the recession and the clean energy provisions in the Obama stimulus bill. The EIA doesn’t forecast CO2 emissions rising back to 2007 levels until 2024 – and this is without taking into account the impressive list of measures to boost renewables and efficiency in the energy sections of ACES (Titles I and II in the jargon of the bill).

Prominent climate blogger Joe Romm believes that the EIA study implies that US CO2 emissions will never return to 2007 levels mainly because the EIA fails to account for ANY new energy and climate policies nor for peak oil and its impact on energy prices

So while all the attention now is on the climate component of ACES (Title III), it may well be Titles I and II that have the greatest impact on the emissions curve. The cap-and-trade scheme may act more as a way of generating revenue for clean energy and other public purposes, rather than a direct driver of emission reductions (much as the massively overallocated Regional Greenhouse Gas Initiative in the northeastern US has turned out).

But having said this, it is important to be clear- eyed about the dangers of offsets within ACES and how they convert the bill’s caps into truthy “caps.” Even if regulatory, economic and cultural changes do result in falling emissions (and they may not), this will not be enough to get the drastic emissions cuts that climate stability demands. Offsets will always be an attractive option for polluters to avoid changing the way they do business.

While we can hope that the massive offsets loophole in ACES will be tightened, pressure from powerful polluters, farm lobbyists and carbon traders mean that it probably won’t. Offsets critics will then need to turn to the regulatory process and fight for quality criteria to be put in place that restrict offset supply to levels low enough to do minimal harm.